Pound May Fall as BOE Governor Carney Talks Down Rate Hike Bets

2017-12-20 05:09:00 Ilya Spivak

Talking Points:

Pound may fall as BOE’s Carney talks down scope for rate hikes
NZ Dollar down as dairy prices fall at auction, trade gap widens
Japanese Yen may decline as the markets’ risk appetite improves

The New Zealand Dollar underperformed in otherwise quiet Asia Pacific trade. The currency fell alongside local front-end bond yields, hinting that a dovish shift in RBNZ monetary policy expectations accounted for the move. A drop in dairy prices – the island nation’s top export commodity – at auction and an unexpected widening of the trade deficit probably accounted for the move.

Comments from Bank of England Governor Mark Carney headline the European calendar. He and a handful of other central bank officials are scheduled to testify before Parliament’s Treasury Select Committee on the latest Financial Stability Report (FSR). Lending conditions have predictably tightened since November’s rate hike but remain generous by historical standards, according to data from Bloomberg.

Mr Carney will no doubt have to reconcile this broadly accommodative stance with inflation running north of 3 percent, explaining to the MPs in attendance why it remains prudent to proceed with caution on removing stimulus. This will likely translate into a conversation about Brexit-related instability risks, which might weigh on the British Pound. Markets don’t expect another hike until late into the second half of 2018.

On the sentiment side of the equation, a pickup in S&P 500 futures hints at brightening spirits across financial markets following yesterday’s broad-based selloff. That might translate into weakness for the perennially anti-risk Japanese Yen as the day wears on, although the currency’s latest moves have conspicuously deviated from strict adherence to swings in the markets’ mood.

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Asia Session